Which of the three dates (date of allotment, date of registration, or date of possession) is taken as the date of purchase of a house property? I feel the capital gains exemption available under Section 54 is available for long-term capital gains. Is there any exemption available for short-term capital gains of a residential property? One can claim exemption under Section 54 for investments made in a residential house property one year before the date of sale. So, is it possible to do that by taking a loan? Am I free to use sale proceeds from my old flat for any purpose since I have already invested by taking a loan?
The registration of an agreement dates back to the date of execution of the contract. Regarding the ready-to-move-in house, the date of sale agreement is to be taken as the date of purchase. However, in the case of an under-construction property, the date of purchase would be the date of allotment or date of possession, depending on whether specific units are allotted or not. This is a grey area and may get litigated. The income tax department may take the date of possession as the date of purchase, taking the stand that before possession, what you have is a right to get the property, which gets converted into a proper right in the property after possession.
Navigating tax exemptions for residential property investments
No exemptions are available regarding short-term capital gains arising from selling any capital asset, including a residential house property. Since the law allows you to claim an exemption under Section 54 if the residential house property is purchased within one year before the date of sale of the original residential house, it does not make any difference whether you use your own savings or take a loan for making such investment to claim an exemption under section 54. Since you have already made the investments and as the law does not require you to use the sale proceeds of your residential house in any specific manner, you can use the money received on the sale of the original house the way you want without affecting your right to claim an exemption under Section 54.
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Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant his X handle.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
